Real competition, not just the possibility of rival airlines arriving some time in the future, is needed to keep prices down, says the Commerce Commission.
As Air New Zealand and Qantas continued their push for permission to merge at the High Court yesterday, David Goddard, QC, said thecommission had to look at the near term - not speculate about what might happen five years from now.
Air NZ and Qantas were not the first to claim that unfettered competition would be bad, with the possibility that one day it might not be viable.
He said that airlines might face serious pressure and a fight for survival on multiple fronts. This was the very essence of competition and what prompted airlines to innovate and cut costs.
There were currently two full-service airlines in New Zealand competing for the business traveller in the early morning, said Goddard, which would be reduced to only one if the alliance proceeded.
Goddard said the Commerce Commission had not forgotten or ignored the impact of Pacific Blue and Emirates when turning down the alliance application.
Research had shown that the mere threat of a new competitor arriving was not enough to constrain others already flying. There had to be an actual, not a potential competitor.
Much of the High Court case centres on what sort of "barriers to entry" other airlines might face when trying to compete with any combined Air NZ-Qantas.
Goddard said the commission had found "significant, but not insurmountable" barriers for new airlines wanting to enter the business.
There were, however, significant barriers for airlines to expand.
After the Commerce Commission has presented its case, travel company Gullivers, then airport investment company Infratil will present their submissions opposing the appeal. The case is expected to last at least three weeks.
The background
* Qantas wants to buy up to 22.5 per cent of Air NZ for $550 million. The carriers then want to fix prices and co-ordinate services on all their flights to, from and within New Zealand.
* This plan was rejected by competition regulators in New Zealand and Australia last year. The result of a Qantas appeal to the Australian Competition Tribunal is pending and Air NZ is appealing to the High Court.
